Under the Trump administration, the Immigration and Customs Enforcement budget allocation is likely to be “sizable,” providing significant growth opportunity for private operators, Canaccord Genuity’s Michael Kodesch said in a report. He added that while there are some near-term concerns, there is upside for both The GEO Group Inc (NYSE: GEO) and Corecivic Inc (NYSE: CXW).

While maintaining a Buy ratings on both companies, Kodesch mentioned that he preferred GEO to CoreCivic in view of the latter’s “inherent near-term headwinds.” The price target for GEO is at $50 and that for CoreCivic at $34.

Skinny Budget Suggests Upside

Trump's Skinny Budget suggested significant expansion in ICE capacity in the near term. Both GEO and CoreCivic seem to be “entering a sustained period of pro-private, tough-on-crime policies” as well as significant immigration reform, Kodesch stated.

“After reviewing the proposals related to the DHS [Department of Homeland Security] and DOJ [Department of Justice], we believe the current administration is targeting material ICE and criminal alien capacity expansion. As the implications of this budget get digested by the Street, we see further upside to GEO and CXW shares,” the analyst wrote.

Near-Term Concerns

GEO is down 60 prisoners to 2,197 prisoners quarter to date, representing a 2.7 percent decline. During the same time frame, CoreCivic witnessed a 5.1 percent decline in total California populations, including a 9.5 percent decline in out-of-state prisoners.

“We believe population decreases may continue to slow in the BOP’s [Bureau of Prisons] system as a result of the Fair Sentencing Act running its course and a new administration with a tough-on-crime background entering the fray,” Kodesch said.